The Ethiopian Supreme Court Annuls a € 20 million Euro International Arbitral Award in Favor of an Italian Contractor Under the European Development Fund Rules (EDF)

In what experts are describing as a groundbreaking precedential decision, the Cassation Bench of the Supreme Court of the Federal Democratic Republic of Ethiopia ruled on 24 May 2018 that it not only has the jurisdiction to review an EDF arbitral award for fundamental errors of Ethiopian law but also that such errors existed in the Permanent Court of Arbitration Case No. 2013-32 (CONSTA JV v. CHEMIN DE FER DJIBOUTO - ETHIOPIEN (CDE).

The case was brought before a panel of three arbitrators at the Permanent Court of Arbitration by an Italian contractor, Consta JV, against the CDE, a joint enterprise of the Governments of Djibouti and Ethiopia, for breach of contract relating to works that were supposed to have been performed in the rehabilitation of the French built Ethiopia-Djibouti Railway.

On May 6, 2016, The Hague Tribunal, composed of Prof. Eduardo Silva Romero (Presiding Arbitrator), Prof. David Arias, Prof. James Thuo Gathii, awarded Consta JV approximately € 20 million Euros by a majority vote. Because the applicable law was Ethiopian law, the CDE appealed to the Supreme Court claiming that the two-member majority of the Tribunal committed numerous fundamental errors of law. Consta challenged the jurisdiction of the Court and defended the Tribunal’s substantive decision.

According to the Supreme Court, the applicable procedural EDF Rules give arbitral awards rendered under such rules the status of a final court judgment of the Contracting States of the Africa Caribbean and Pacific - European Union (ACP-EU) Partnership Agreement signed in Cotonou in June 2000. Because the Ethiopian Constitution grants the Court of Cassation the jurisdiction to review final court judgments of all Ethiopian courts for fundamental errors of Ethiopian law, the Court has jurisdiction to review this particular EDF Award as it is assimilated into being an Ethiopian court judgment under the rules. Experts say that this jurisdictional ruling being the first such decision by the highest court of any ACP-EU countries, it could be a groundbreaking precedent affecting existing and future EDF cases in many profound ways.

Having reviewed the Tribunal’s Award under such interpretation of its constitutional authority, the Court announced on 24 May 2018 that it decided to annul the award on numerous substantive grounds, most importantly, the Tribunal’s disregard of what it called a clear evidence of fraudulent bidding on the part of Consta JV that the European Union Anti-Fraud Office uncovered during the pendency of the arbitral proceedings. The Court said that, under Ethiopian contracts law, fraud vitiates contract and deprives it of legality to sustain a breach of contract claim. Because the Tribunal avoided answering the question of whether or not the CDE would have entered into the contract had it known the misrepresentation, the Tribunal erred in the interpretation and application of Ethiopian law rendering the Award a nullity. In its 24 May 2014 decision, the Court seems to have suggested that the Parties may choose to seek reinstatement in another arbitral proceeding because the only remedy for a contract that is considered null and void is reinstatement of the Parties to the position they had held before the conclusion of the putative contract.

This case was one of two arbitral proceedings initiated by Consta’s parent company, Mattioli JV. It is to be recalled that the Ethiopian Water and Irrigation Ministry, the Respondent in the second case, had prevailed against Mattioli.

In the arbitral proceedings, Consta JV was represented by a Milan based law firm, Arblit – Radicati Di Brozolo Sabatini, and the CDE was represented by the Washington based Addis Law Group, LLP. Although both firms seem to have remained involved before the Supreme Court, Consta was represented by Mesfin Tafesse and Wossenyeleh Tigu, and the CDE was represented by Dr. Zewdineh Beyene Haile, and in-house counsel, Asrat Mekonnen.

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